Estate Planning & Asset Protection in Dublin


What is ‘Estate Planning’?

O’Shea Legal will help you with Estate Planning & Asset Protection in Dublin extensively. We provide a solution to structure your assets.

Estate Planning in Ireland is a term that describes the orderly and efficient transfer of wealth and assets between individuals, usually family members. It covers any gift or inheritance and the careful consideration of the most tax efficient way to effect the transfer.

 

How can I transfer assets free of gift tax or inheritance tax?

The answer to this question depends on the value of the gift or inheritance and the relationship between the donor and the recipient. For example a parent may gift the sum of €250,000.00 to a child tax free. Any amount in excess of this will be taxed at a rate of 30% since the 7th December 2011. This rate may change so it is advisable to check the revenue site www.revenue.ie for the prevailing threshold and rate of tax applicable at the relevant date. The following is the tax free thresholds for donees with differing degrees of relationship with the donor or testator:

Indexed group thresholds
Relationship to DisponerGroup Threshold from 8/4/2009 to 31/12/2009Group Threshold from 1/1/2010 to 7/12/2010Group Threshold from 8/12/2010 to 31/12/2010Group Threshold from 1/1/2011 to 6/12/2011Group Threshold from 7/12/2011 to 5/12/2012Group Threshold from 6/12/2012
Son / Daughter €434,000 €414,799 €332,084 €332,084 €250,000 €225,000
Parent* / Brother / Sister / Niece / Nephew / Grandchild €43,400 €41,481 €33,208 €33,208 €33,500 €30,150
Relationship other than Group A or B €21,700 €20,740 €16,604 €16,604 €16,750 €15,075

 

How could establishing a Trust be useful and save tax?

Trusts are useful in the context of estate planning and can be useful in a variety of situations particularly:

  • To defer the vesting of assets in an intended beneficiary.
  • To retain control over capital.
  • To avoid the provisions of the Succession Act 1965 which confer certain rights on spouses and children.
  • To make provision for minors,  or beneficiaries who are incapacitated.
  • To protect beneficiaries who are exposed to creditors.
  • To defer the payment of tax.
  • To make provision for improvident beneficiaries to ensure their needs are fulfilled.

 

What is the advantage of a Discretionary Trust?

This is a trust that gives the trustees sole discretion as to how the assets of the trust are to be applied for the benefit of a class of named persons who are the beneficiaries. In other words, the person who sets up the trust and who provides the assets has no say in relation to who gets what except that the Trustees may take into account his or her wishes. The assets are normally subject to discretionary trust tax however there is an exemption from this tax where it is established for:

‘the benefit of one or more named individuals and for the reason that such individual, or all such individuals, is or are, because of age or improvidence, or of physical, mental or legal incapacity, incapable of managing that individual or those individuals affairs’

 

How may I pass my house to someone free of tax?

A dwelling house and up to I acre of land may be passed to anyone (relative or non relative ) tax free regardless of value if the following conditions are satisfied:

  • Beneficiary must have continuously occupied the property as his or her main residence for three years immediately prior to gift or inheritance;
  • Beneficiary, at the date of the gift or inheritance, beneficially entitled to an interest in any other dwelling house;
  • Must continue to occupy as his or her only/main residence for 6 years after date of gift or inheritance (unless aged >55)
  • House may be sold post gift/inheritance and within 6 years if replaced with another within 1 year;
  • House must not be disponer’s only/main residence (unless the disponer is compelled by old age or infirmity to depend on the services of the donee)

 

How do I pass my business to someone free of tax?

Relevant business property (which may include a business, qualifying quoted and unquoted shares), gifted or inherited will qualify for substantial tax relief if the conditions prescribed by the 2003

Capital Acquisitions Tax Act are satisfied:

Only 10% of the taxable value of the benefit will be taxed;

  • Only 10% of the value of the benefit passing will be taxed.
  • Private shares will qualify if beneficiary after the transfer:
    • Owns >25% of voting rights or
    • Controls company or
    • Owns 10% of nominal value of issued shares and has worked fulltime throughout period of 5 years in business.
  • Relief also applies to assets such as land, buildings, plant or machinery, not owned by the company if the asset is:
    • Owned by the disponer and;
    • Used wholly or mainly for the purpose of a business controlled by the disponer and;
    • Disposed of at the same time as the shares in the company or interest in the business.
      • It must be a wholly or mainly trading business.
      • Genuine property development company will qualify.
      • Businesses which consist wholly or mainly of dealing do not qualify
      • A farm may qualify for business relief if beneficiary is not a farmer;
      • Clawback within 6 years if assets cease to qualify or are sold and not replaced

 

How do I pass my farm to my beneficiary free of tax?

Agricultural property (which may include farm buildings, houses and mansions) gifted or inherited by a farmer will qualify for a substantial reduction in tax if it satisfies the rules prescribed by the 2003 Capital Acquisitions Tax Act:

  • Only 10% of the value of the benefit passing will be taxed.
  • Only 10% of relevant liabilities costs and expenses may be deducted;
  • Beneficiary must be a ‘farmer’ on the valuation date ie his assets are > 80% farming;
  • There will be a clawback if the property is disposed of by the farmer;
  • If the beneficiary is not a farmer then business relief (see above) could apply.

 

Can my favourite nephew qualify for any tax relief?

Yes, business assets may be passed to a nephew who will qualify for the tax free threshold available to a child if the following rules are satisfied:

  • Applies to a child of a brother or sister of the disponer;
  • Nephew must have worked in the business substantially on a full time basis immediately prior to the benefit;
  • Benefit consists of property, used in connetion with trade, business, profession or employment or office of the disponer, or consists of shares in a company owning such property.

 

How can my Legal Personal Representative minimise the tax liability after Death?

In general in Ireland a Will cannot be varied post death. However it is possible now to vary a Trust. There are however four mechanisms available to help adjust the effects of a Will to suit the needs of the beneficiaries at the time of death and to possibly minimise the tax consequences of the Will:

  • A Will Trust may contain express powers of variation;
  • The beneficiaries may execute Deeds of Disclaimer;
  • The beneficiaries may execute  Deeds of Family Arrangement;
  • A Trust may be varied in certain circumstances.

 

Variation of will Post Death

It is very rare in Ireland to find a provision in a Will allowing it to be varied post death. The drafting of such a will is possible but very technical and a risky undertaking for a solicitor as  there is a high probability that it will be challenged unless all the beneficiaries are in agreement.

 

Deed of Disclaimer

A beneficiary may disclaim a benefit and the disclaimed benefit may in certain circumstances be ‘steered’ in the direction of another beneficiary. In this way the cake may be re-distributed in a more tax efficient manner subject to some rules:

  • It is not possible to disclaim in favour of a particular person as this would amount to a gift and would attract gift tax and perhaps stamp duty.
  • A beneficiary may disclaim one or more benefits;
  • A beneficiary may not disclaim part of a benefit;
  • Joint beneficiaries must jointly disclaim if disclaiming in favour of a third party;
  • A limited interest under a Trust may be disclaimed;
  • A disclaimed benefit under a will falls into the residue.
  • The residue is used firstly to pay debts of the estate;
  • Care must be exercised where the person disclaiming in an intestate estate is not the spouse or lineal ancestor of the deceased as that person is now presumed to have predeceased the intestate and died without issue.

 

An example of use of a Disclaimer for Estate Planning would be:

Charlie, a widower, dies leaving his estate with a value of  €300,000.00 to his only child Jack for life with remainder to his two grandchildren Laurel and Hardy. When Jack dies the grandchildren take an inheritance from Charlie of the value of the trust fund at the date of Jack’s death. As grandchildren they only have a class B threshold.
In this case, if the grandchildren disclaim their benefit on the death of Charlie then Jack, who has a class A threshold inherits the entire estate with minimal tax. The tax liability may be eliminated if the Disaclaimer is done in consideration of the payment by Jack to the grandchildren of a sum equal to their class threshold as this is treated an an inheritance from their grandfather.

 

Deed of Family Arrangement

The beneficiaries may decide amongst themselves how a property is to be distributed and enter into a Deed of Family Arrangement. It is important to remember that these arrangements are effectively gifts between the beneficiaries and give rise to gift tax implications. A common example is where a parent dies and leaves a family home equally between say three children one of whom may be living in the house. Another child may be abroad and agrees to sell his share to the child living in the house and the third may be well off and agrees to gift his share. Stamp duty would be payable on the open market value of the gift and the sale ie of two thirds of the value of the property. There is no Capital Gains Tax if the Deed of family Arrangement is made within two years of death. Inheritance tax will be due on the inheritance from the deceased and on the gift from the sibling which is deemed to be an inheritance from the deceased. Gift tax may also be due on portion of the purchased share if the consideration paid is below market value.

 

Variation of Trusts

A person may apply to vary a trust for the benefit of a ‘relevant person’ comprising: a person who is incapable by reason of infancy or absence of mental capacity; an unborn person; a person whose identity, existence or whereabouts cannot reasonably be established; a person with a contingent interest under the trust who is not an infant or under a disability, e.g. a recalcitrant adult beneficiary. The Land & Conveyancing Law Reform Act 2009 makes specific statutory provision for the first time in Irish Law for the variation of Trusts.

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